Ch 2 Review Questions

Question 1

Explain what it means for the Codification’s guidance to be “authoritative.”

Answer 1

It establishes FASB Codification and GAAP.

U.S. nongovernmental entities must prepare their financial statements in accordance with GAAP.

Question 2

Explain why the Codification was developed.

Answer 2

To simplify the research of accounting standards into one primary source.

Before this, accountants had to search through several individual sets of standards to find a single topic.

Question 3

Aside from the FASB, name three other standard-setting bodies whose guidance is included in the Codification.

Answer 3

Emerging Issues Task Force (EITF)
Committee on Accounting Procedure (CAP),
Accounting Research Bulletins (ARB), and
Accounting Principles Board (APB)
AICPA
SEC

Question 4

What two organizations give the FASB the authority to establish “authoritative” accounting guidance? Explain.

Answer 4

SEC: under the Securities Exchange Act and SOX, the SEC recognizes the FASB’s authority to establish GAAP for the private sector

AICPA: recognizes the FASB’s authority to establish GAAP for nongovernmental entities

Question 5

Explain the role of industry-specific guidance in the Codification. Does it apply instead of other general Codification guidance?

Answer 5

Industry-specific guidance must be applied in addition to general requirements of the Codification.

There are limited cases in which industry-specific guidance indicates that it should be applied in lieu of the Codification’s general guidance.

Question 6

Which search method does the FASB suggest that researchers use as a starting point when conducting research? Explain.

Answer 6

Perform Browse searches as a starting point when conducting research.

This provides a better understanding of relationships between Codification topics

Question 7

In the following template for a Codification reference, what does each group of letters represent?
XXX-YY-ZZ-PP

Answer 7

Topic (XXX) - Subtopic (YY) - Section (ZZ) - Paragraph (PP)

Question 8

Which additional areas in the guidance are considered “required reading” for a researcher who has found general guidance in the Initial Measurement section, but who needs to be sure his or her search was thorough? (Name three other areas the researcher should consider.)

Answer 8

1) Overview section (-05) to become more familiar with a subtopic

2) Scope section (-15) to confirm that the researcher’s answer can be found within the scope of this specific guidance

3) Implementation Guidance (-55)

4) SEC (S-00) sections to confirm how the guidance should be applied

Question 9

What is the name of the guidance currently issued by the FASB to update the Codification? Is this guidance considered “authoritative” in its own right?

Answer 9

Accounting Standards Updates (ASU) and is considered to be pending content.

ASU’s are not authoritative but will replace the current guidance in the Codification once it becomes fully effective.

Question 10

What is the purpose of the cross-reference feature in the Codification?

Answer 10

It allows researchers to link Codification topics with the original standards used to populate it.

Question 11

When might the cross-reference feature in the Codification be useful to a researcher?

Answer 11

When trying to understand guidance that may have applied in the past but is no longer effective due to being replaced with newer guidance.